What Are the Effects of Declaring Personal Bankruptcy?
If you are having trouble paying your bills or have too much debt, you may be thinking about filing for personal bankruptcy. This move can have serious effects that are important to consider before you file.
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Discharged Debt
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Personal bankruptcy helps consumers "wipe clean" their unsecured debt. In other words, unsecured debt like credit card debt can be discharged, meaning you no longer owe the credit card company the money.
Bankruptcy Types
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There are two types of personal bankruptcy: Chapter 7 and Chapter 13. The former will liquidate (sell off) your estate's assets to pay your creditors. A Chapter 13 plan allows for payments to a trustee over a three- to five-year term so the trustee can pay off your creditors over time.
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Effects on Job
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Bankruptcy does not usually affect your employment. During a Chapter 13 bankruptcy proceeding, the trustee may seek to initiate a "wage order" that will deduct the amount of your trustee payments from your paychecks and send them directly to the trustee. That way, you don't have to worry about late payments.
Effects on Credit
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A personal bankruptcy will stay on your credit report for up to 10 years. But during that time, you will still be able to get credit and take out loans. Making regular payments on credit cards and bills will help raise your credit score over time.
Length
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A Chapter 7 bankruptcy usually lasts for three to six months while your estate is liquidated and creditors are paid. A Chapter 13 bankruptcy can last for three to five years.
Professional Advice
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When considering a bankruptcy filing, the professional advice of a bankruptcy attorney may be helpful.
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